So, you're going to get a mortgage? Breathe in deeply. Get ready to spend some time doing your assignments. Putting in three or four hours of work could save you thousands of dollars now and tens of thousands of dollars in the long run. It can be scary to think about how to pay for a house, but it's not rocket science. A few simple things can make all the difference in the world.
Let's get started
Get an education. Get several quotes. Most of the time, a mortgage broker will offer a better deal than a bank, but calling a bank or two to compare isn't going to hurt. A good loan originator will talk to you for as long as you need on the phone. And a real professional will ask you enough questions to figure out what you want to do with the loan. If a conversation doesn't make you feel good, trust your gut and cross it off your list.
Write everything down.
Make sure to ask for estimates in good faith. Getting a mortgage can cost a lot of money in a number of ways. You'd like to see all of them. It can be hard to compare Good Faith Estimates because different mortgage lenders often use different terms. That shouldn't stop you. You should also ask the mortgage broker if there are any costs that are not included in the estimate.
Don't pay attention to the APR.
The Annual Percentage Rate, or APR, was made so that people could compare mortgages. I won't get into the math, but I think APR was a good idea in general. In real life, it hasn't helped at all. When figuring out APR, not all lenders use the same ways to count things. To add to the confusion, the way adjustable rate mortgages are calculated is often wrong. But that's all right! APR is made up of two things: the interest rate on the loan and the closing costs. Everything you need to know is on the Good Faith Estimate.
Points versus rate
Since 1989, I've worked as a mortgage broker in Florida. Georgia, Massachusetts, and Virginia also have licences for my business. We talk to a lot of people about how to pay for their homes. When looking for a mortgage, I've noticed that people tend to focus on the interest rate and forget about the points. Rate of interest and points go in the opposite direction. A lender is likely to price your loan with one or two points unless you say you don't want to pay them. Your rate will go down, but it might not be a better deal. If the lower rate saves you $50 a month on your payment but costs you an extra $5,000 in points, it will take you eight years to make up for the points. Figure it out.
The trap on the edge
Many programmes that let you get a mortgage with an adjustable rate now give you a range of margins to choose from. This means that you might be able to decide what your future interest rate will be. At some point, the interest rate on every adjustable-rate mortgage changes to be equal to an index plus the value of your margin. You can't do anything about how the index moves. But if you can get a lower margin, you'll have a lower rate (once your loan starts adjusting) for as long as you have your loan. All of your estimates of good faith should show the margin for your loan. Call each mortgage broker and let them know that you want a lower margin. Don't be nervous. The money is yours!
Early payment fees: The good and the bad
As a Florida mortgage broker who is licenced in more than one state, I talk to many people about money every day. Most people don't want to take out a loan that has a fee for paying it off early. But you should look into it. If you add a prepayment penalty to your loan, your interest rate may go down by a lot. Most prepayment penalties end after three years, but many lenders are now giving you the option of one, two, or three years. Will you still be living in the house after the early payment penalty is over? If you can avoid the fine, your monthly payment will be lower for as long as you have the loan. This adds up. It didn't even cost a dime!
Choose wisely
There are so many mortgage programmes to choose from these days that it's hard to keep track. You can choose a fixed-rate mortgage or one with an adjustable rate. Or, you could choose one of the many hybrid fixed period adjustable programmes that give you the comfort of a fixed rate for a set number of years before the rate starts to change. There are now interest-only options for both fixed-rate and variable-rate loans. Think about yourself when you choose a mortgage programme. Any choice makes sense only if it fits in with the rest of your life.
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